Marchionne’s call for end to two-tier wages worries Canadian union

Fiat Chrysler Automobiles Group CEO Sergio Marchionne speaks at a press conference after presenting the 2014-2018 business plan to investors, financial analysts, and key stockholders at the company's 2014 Investor Day at the Chrysler Group headquarters May 6, 2014 in Auburn Hills, Michi. (Bill Pugliano/Getty Images)

Two-tier wage facts

In the U.S., new hires at Detroit Three plants earn between $15.78 and $19.28 an hour compared to $28.44 for workers at the regular rate. The top tier also enjoys richer benefits, including a pension plan instead of the 401(k) for entry-level workers.

In Canada, unionized autoworker earn a top hourly rate of about $34. New hires start 60 per cent of the top rate, or about $20 an hour, and take 10 years to progress up to the top wage. New hires are enrolled in a “hybrid” pension plan, whereby half their pension would be in a defined-benefit plan and half in a defined-contribution plan. Defined-contribution plans don’t contain a guaranteed payout at retirement.

Word that Chrysler Group CEO Sergio Marchionne wants an end to the two-tier wage structure at Detroit Three auto plants in the U.S. is making union officials on this side of the border nervous.

“My worry is more in line with the (United Auto Workers’ union) creating a new standard for top wage earners that is lower than the current $28 an hour,” said Dino Chiodo, president of Unifor Local 444,which represents about 4,500 hourly workers at the Windsor Assembly Plant. “That changes the playing field for everyone. We’ve done some dynamic things. But they won’t be suitable if you’re competing against even lower markets.”

At the Fiat Chrysler Automobiles five-year product plan unveiling in Auburn Hills, Mich., last week, Marchionne touched on the issue of the 2015 contract negotiations with the UAW. While he was reluctant to speak at length about bargaining that is more than a year away, Marchionne reiterated his long-held opposition to two-tier wages, which keep entry-level workers on a permanent, lower pay grid.

He advocated phasing out the older, higher tier and tying the new, lower tier to company performance instead of “entitlement” in the form of annual wage hikes.

“I always have been of the view that the two-tier wage structure is unsustainable in the long term,” said Marchionne. “The real problem here is we need to freeze the tier ones and make them a dying class and I don’t mean this literally.

“We have to replace the tier two wage structure with something that reflects the sharing of the economics of running this enterprise. I do see in some particular cases the tier twos should be able to make more than a tier one, but only in the event that the company is successful. I object violently to the notion of entitlement in the wage structure. That is something that is incredibly unwise.”

Chiodo fears the gradual end to two tier wages could ultimately lead to a top rate in the low $20 range, widening the gap between American and Canadian labour costs, thus making Canadian plants less competitive.

Tony Faria, an auto industry expert at the University of Windsor, agrees with Chiodo’s analysis.

“There are some people who think Marchionne being against two-tier wages means he’s being generous enough to raise everyone to tier one,” said Faria. “He wants one wage rate, but he wants it set between tier one and tier two.”

That will make life more difficult for Unifor officials as they gear up for 2016 Detroit Three contract talks. The outcome of those negotiations, according to Marchionne, will be key in determining whether the automaker will continue to invest in the long-term future of its assembly operations in Windsor and Brampton.

“Marchionne has made it clear he wants labour costs in Canada to be in line with the U.S.,” said Faria.

In the 2012 contract talks, the union — then the CAW — fought off demands for two-tier wages and profit sharing. It instead agreed to lower the starting hourly wage to 60 per cent of the regular hourly rate of $34 and lengthen the grow-in period from six to 10 years. The current four-year deal, the union argues, makes labour costs at least comparable with the U.S., particularly when you factor in the lower loonie.

But Chrysler’s long-term commitment to its Canadian assembly plants remains in doubt after Marchionne withdrew his request for government funding in March for a multibillion-dollar retooling of the Windsor and Brampton plants, in part because of growing opposition by critics who termed the request “corporate welfare.” Chrysler, he said, will fund upgrades to both Windsor, which will build the next generation minivan, and Brampton, which assembles the Dodge Charger and Challenger and Chrysler 300 sedan.

What isn’t clear is whether it will be a full-blown retooling that could keep the plants running for decades or a short-term fix while the carmaker looks for lower-cost alternatives outside of Canada.

The two-tier wage system has been a thorn in the side of the Canadian union since it was first introduced at UAW plants in 2007 amid plant closures and layoffs.

In the U.S., at least 40 per cent of Chrysler Group’s hourly workers are so-called entry level employees, while the figure is 21 per cent at Ford and 16 per cent at GM, according to statistics compiled by Automotive News. Kristin Dziczek, analyst at the Center for Automotive Research in Ann Arbor, Mich., said that figure for Chrysler could soon reach 50 per cent because of new hiring.

While pressure to cut costs will be intense on this side of the border, the pressure to make gains will be equally intense on Detroit Three automakers, who’ve enjoyed a steady run of profitability, analysts said. American autoworkers, meanwhile, have not had pay increases for about a decade.

“The UAW is going to press for a lot of improvements because the companies are making a lot of money at this point in time,” said Faria. “My thought going into 2015 is the UAW will press for raises for all workers and the phasing out of second tier. It’s not going to be wiped out overnight. This might work to Unifor’s benefit.”

Dziczek said the next round of UAW-Detroit Three talks is going to be challenging. Employers will push hard to maintain wage structure flexibility, with such provisions as profit sharing versus wage hikes, she said.

Originally, second-tier wages were set up with limits on the percentage of employees hired at the lower level. Those caps were removed at GM and Chrysler during the 2009 restructuring. “In 2015, they either put the caps back on or renegotiate the whole cap structure,” predicted Dziczek.

Labour costs on the Canadian side depend on the number of new workers, she said. “If the Canadian industry continues to contract, you have more workers in the upper wage category. There still remains a currency advantage in the U.S. Even if the UAW has small gains, it still remains cost advantageous in the U.S.”

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